If you are closing on a home or refinancing, there’s a good chance you’ll come across the words “escrow account” or “impounds” numerous times.

At the most basic level, an escrow account is a savings account that is funded at closing and maintained by your lender so they have funds to pay the property taxes and homeowners insurance for the property they are lending on.

Funds in the escrow account are kept current by the borrower paying into it each month. A portion of every mortgage payment goes into the escrow account, so sufficient funds are available to pay the taxes and homeowners insurance premiums when those payments come due each year.

Why?

The mortgage company wants their asset to be protected. If they can make sure that the taxes are paid and the property is properly insured, their investment (the real estate) is better protected and there is less risk that a tax lien results on the property and/or there is property damage to the home while it’s uninsured.

Pros

Many homeowners like having an escrow account because, as explained above, it acts as a kind of savings account for these larger bills that must be paid annually for you to continue owning your property. Instead of having to stroke a check when the taxes are due, you just let the lender pay the taxes for you. This way, if you budget to be able to afford your monthly mortgage payment, you will in essence be saving for your tax bill and homeowners policy premium simultaneously.

Cons

Depending on the size of your home, the amount of funds in your escrow account is not insignificant, particularly right before one of the bills is due to be paid. Some homeowners dislike the lender being able to make interest on their money in escrow when in theory, that money could be making the borrower interest instead.

Escrow accounts are typically maintained by servicing companies. While not all bad, sometimes servicers make mistakes when handling your escrows. Homeowners tend to dislike having to work with a servicer to sort out escrow issues, which can be anything from an improper overage issued to the borrower, to a missed payment altogether.

Servicers are imperfect, like anything else. By and large most work to efficiently pay your taxes and insurance, but it never hurts to double check behind them. Contact your insurance company to confirm they’ve received payment each year. You can also search the property tax records to verify that the county/local entity where your property is located received payment for the property taxes. Most counties maintain this public information online.

Can I get rid of my escrow account?

The short answer is yes, but it will cost you. Lenders typically require an escrow account be established at closing as a portion of the borrower’s monthly mortgage payment if they are putting less than a twenty percent (20%) down payment on the property. Even if you meet the down payment requirement, some lenders will require the borrower to pay an escrow waiver fee, and/or they may charge a slightly higher interest rate if you choose to forego escrow.

Read the fine print and discuss in detail with your lender the costs (if any) associated with waiving the escrow requirement.

Why does it look like I’m being charged twice for escrows?

A common question I get at closing is why the escrow “closing costs” are so high. It also can appear that borrowers are “being charged double” for escrows as well. This is for several reasons.

First – homeowners insurance premiums are paid in advance. There is typically a 12-month premium that is collected and paid at closing to the insurance company to insure the property for the upcoming year.

Second – property taxes in the Carolinas are paid in arrears. This is the opposite of the insurance. The amount of funds deposited in the escrow account for property taxes will depend on when you close. For South Carolina, the property tax bills come out in October. In North Carolina, the property tax bills come out in late July/early August.

As an example, if you close in the month of August on a SC property, your lender is typically going to collect 11 months worth of property taxes as part of what is called the “initial escrow payment at closing” on the buyer’s Closing Disclosure. Why eleven months? Well, a closing in August typically results in a first mortgage payment due in the month of October, which is the same month that the current tax bill comes out. So that will be one more payment for the taxes, which brings your escrow account to 12 months, or a full year’s worth of property taxes in the account so that the lender can pay the bill once it is received.

Conclusion

Understanding escrow accounts in general and as they apply to your particular property will help ensure a smooth closing process with your lender and your closing attorney. As mentioned above, more expensive real estate requires that higher amounts be escrowed, so it’s important to take the monthly escrow costs into account when determining what real estate you can afford to buy and maintain.

Make sure you take care of your fury kids, too. Trust provisions are an easy way to make sure every member of your family is covered when something happens to you.

If you have kids, chances are your will has some basic trust provisions for them – if both parents are gone, the trust provisions cover the things like healthcare, education, and putting food on the table and roof over their head. Your will also has guardian provisions – who is going to take care of your kids if you’re no longer around.

If you have kids under the age of 18, and you don’t have a will, then drop everything and get this taken care of now. I’m happy to help – just shoot me a message or email me at bobby@meethelm.com to get the ball rolling.

But what about your furry kids? If your family’s relationship with pets is anything like mine, then the fury kid is probably the true first kid in the family. Yep. Katie and I got Cinder a good 4 years before Tripp showed up.

Cinder is as much a part of the family as our 3 kids. All of us know someone (or have had to go through the process) of putting a beloved family pet to sleep. It’s heart-breaking – like losing a member of the family. So why shouldn’t we provide for them in our estate plan?

Unfortunately, the law treats pets like personal property. In other words, the law doesn’t see any difference between Cinder, our dog that’s been with us for 12 years, and my golf clubs. You’ve made sure your human kids are covered. You should probably make sure your fury kids are covered. And mind you – I’m not discriminating against reptiles, birds, or any other pet that doesn’t have fur. In fact, if your family pet falls outside of your standard dog or cat, then it is even more important to take care of the pests in your estate plan.

How do we do it? Well, you have trust provisions for your kids. Why not have trust provisions for your pets? A pet trust. We’ve all heard about the lady who left tens of thousands of dollars to her cat. Same idea – but we’re not actually giving the money to the cat, or dog, or snake, or whatever. We give the money to someone who will take care of the pet; just like we set aside money for someone to take care of our kids.

You shouldn’t take it for granted that someone is going to volunteer to take care of your pet when something happens to you. Pets can get expensive quickly. One estimate shows that the pet care industry could reach almost $100 billion annually by 2020. This should come as no surprise, but there are veterinary specialists just like there are specialists for humans. There are neurologists for dogs; oncologists; therapists who prescribe Prozac type drugs for pets who have anxiety issues.

And here’s the problem with assuming someone will just show up: if no one steps up, then your fury kid is going to the pound / animal control. And if no one adopts them, well…

So here’s what should be included in your estate plan for your pets: designate someone to take care of the pet. Make sure this person is cool with adopting your pet.

Put pet trust provisions in your will. It doesn’t have to be anything complicated. Set aside a certain amount, and then give the person who will be adopting your pet the authority to use the funds to take care of your fury kid. You know – food, shelter, vet bills, trips to the doggie spa. All the necessities.

We do pet trusts for our clients on a regular basis. If you already have a will, but there’s no pet trust provision in there, we can still update your plan without having to reinvent the wheel. A simple codicil (amendment) to your will solves the problem.

So, to wrap it up – make sure you take care of your fury kids, too. Trust provisions are an easy way to make sure every member of your family is covered when something happens to you.

This is Bobby Sawyer. I am one of the owners of helm and Johannesmeyer & Sawyer. We’d love to help you make sure you have a comprehensive estate plan in place. If you’d like more information on what we do, send me a message on Facebook; email me at bobby@meethelm.com, or find us on the internet. Helm is our online law firm – www.meethelm.com, and Johannesmeyer & Sawyer is our traditional law firm – www.jandspllc.com.

For many, passing along religious beliefs and values to the next generation is just as important as passing along financial wealth and tangible assets. Estate planning creates many opportunities to do this, including:

End-of-Life Care
A health care power of attorney (Advance Directive in some states) lets you name someone to make medical decisions for you in the event you cannot make them yourself. This can be someone who shares your faith and values about end-of-life issues or someone who will honor your wishes. In either case, it is a good idea to provide written instructions about things like organ donation, pain medication (some may want to remain conscious at the end of life), hospice arrangements, even avoiding care in a specific facility. A visit by a priest, rabbi or other member of clergy may be desired. Pregnant women may want to include their preference on medical decisions that would impact the mother and her unborn child.

Funeral and Burial Arrangements
Faith can influence views on burial, cremation, autopsy, even embalming. Faith may also influence certain details in a funeral or memorial service. Some people pre-plan their services and include a list of people to notify (which can be helpful for a grieving family). Some even pre-pay for the funeral and burial plots to prevent their loved ones from overspending out of grief and/or guilt.

Charitable Giving
Giving to others who are less fortunate is common among people of all faiths. Making final distributions to a church or synagogue, university, hospital and other favorite causes will convey the value of charitable giving to family members.

Distributions to Children and Grandchildren
Taking the time to plan how assets are left to family members lets them know how much they are loved, and is another way to convey faith values. For example, providing for the religious education of children and/or grandchildren speaks volumes. Parents of young children can select someone who shares their religious views to manage the inheritance. A letter of instruction to the guardian can include views on the care and upbringing of young children, which are often influenced by faith.

If the children are older and a son- or daughter-in-law is not fully trusted, an attorney can assist with providing for a son or daughter in a way that will prevent an inheritance from falling into the wrong hands. However, making an inheritance conditional or disinheriting a child or grandchild who marries outside the faith or doesn’t share their parent’s faith can backfire. We cannot really force someone to believe as we do, and trying to do so by withholding an inheritance will only create discord in the family and may not be recognized. The emotional scars on the family, especially if a bitter legal fight results, are probably not what parents want for their family.

Transferring faith and values to family members is best done over time, by letting them see your faith at work in your life, taking them to religious services, and letting them see you being charitable. But it’s never too late. Talk to your family while you can. Explain what your faith means to you and how it has helped you through difficult moments in your life. You can also write personal letters or make a video that they can keep and review long after you are gone.

What Should You Do?
Bobby Sawyer offers clients a No Hassle Trust and Estate Strategy Meeting, where they get experienced guidance on how to achieve total asset protection, long term security, and peace of mind for themselves and loved ones. If I’m not the right attorney for the case, you have my commitment that I’ll point you in the right direction. Just call my office at 803-396-3800 to schedule.